Sell Rating on Epam Systems Amidst Sluggish AI Investment and Weak Growth Prospects

Morgan Stanley analyst James Faucette maintained a Sell rating on Epam Systems (EPAM – Research Report) today and set a price target of $236.00.

James Faucette has given his Sell rating due to a combination of factors affecting Epam Systems’ potential for near-term growth. Despite the interest and discussions around generative AI, the actual investments in services related to AI are not materializing in a significant way. Most of the AI-related activities are still experimental and not leading to additional budgets being allocated. Moreover, even though Epam Systems may recover some projects lost after the conflict in Ukraine, these regained projects are not expected to make a considerable impact on the company’s financial performance in the short term.

Furthermore, a closer look at the prospects for discretionary projects, which are often an indicator of IT services demand, suggests a lack of positive momentum. Faucette’s analysis also points to a broader concern in the IT Services industry. Epam’s projected growth trajectory for 2024 and 2025 is believed to be more gradual than what investors might anticipate. Contributing to this cautious outlook is a decline in venture capital investment, which often drives innovation and corporate spending on new projects. This decline may signal a slowdown in corporate spending that could adversely affect Epam’s growth prospects, leading to the recommendation to sell the stock.

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Epam Systems (EPAM) Company Description:

EPAM Systems, Inc. engages in the provision of software product development and digital platform engineering services. The firm’s services include product research, customer experience design, and prototyping. It operates through the following segments: North America, Europe, and Russia. The company was founded by Leonid Lozner and Arkadiy Dobkin in 1993 and is headquartered in Newtown, PA.